This
year is a crucial year for the multilateral trading system. In
November Qatar will host the fourth WTO ministerial meeting. Our aim
is to launch a new round of multilateral trade negotiations. It is a
big challenge, but with focus and flexibility we can succeed. The
alternative looks very unattractive.

The
world economy is showing signs of vulnerability. The US economy, its
motor for the past decade, is stuttering. For the world trading
system, this poses a threat as well as an opportunity. I am always
reluctant to predict recessions, I am a bit of an authority. I
accurately predicted ten of the past four recessions.

The
threat is that a recession in America could export trouble to the rest
of the world. Some countries would be more at risk than others in
terms of the immediate effects. Canada and Mexico sell more than 85
per cent of their exports to the United States. Malaysia sells over 20
per cent. Big exporters of electronic goods like South Korea and
Taiwan, would also be hit hard by a fall in American spending on
information technology. Europe and Japan are more exposed to America
through foreign investment than through trade. A downturn in America
would deal a big blow to companies such as Daimler Chrysler and Toyota
which have large American-based affiliates. And developing countries
with large current-account deficits, like Brazil and other Latin
American economies, would suffer if an American downturn caused a
flight of capital to safety.

The
blow to the world from a slowdown in America could be many times
greater if harder times stoke up protectionist pressures. Even during
the good times, there has a been a worrying surge in anti-dumping and
anti-subsidy investigations in both developed and developing
countries. Over 400 were launched in 1999, up from only 166 in 1995.
And the OECD has noted that producer support estimates for agriculture
are rising again. Support for agriculture in OECD countries amounts to
a billion dollars a day.

Things
could get much worse if companies squeezed by falling profits convince
governments that they need protection from foreign competition. The
virtuous circle of trade liberalisation and economic growth could all
too easily become a vicious spiral of protectionism and stagnation.

It
need not come to that. This is where the opportunity offered by a
precarious world economy comes in. The prospect of stagnant, or even
shrinking, domestic markets increases the lure of new, foreign ones.
This can help muster an export lobby powerful enough to overcome the
entrenched interests opposing freer trade. Moreover, a growing risk of
protectionism makes the need for an insurance policy that protects
against it all the more pressing. For instance, car manufacturers that
start to fret that their supplies of cheap foreign steel will be cut
off may start to lobby vigorously for open markets. What's more, a
shared sense of vulnerability need not lead to beggar-thy-neighbour
policies: it can also encourage greater co-operation between
governments. That, after all, was the rationale for setting up the
multilateral trading system after the protectionist nightmare of the
1930s. And last but not least, anxious politicians could come to see
fresh moves towards trade liberalisation as a way to tide the economy
through hard times. It boils down to this. When do you fix the roof?
When the sun shines or when it rains? There are dark clouds out there.
The forecast is for heavy winds and light drizzle.

The
economic case for a new WTO round is compelling. Cutting barriers to
trade in agriculture, manufacturing and services by a third would
boost the world economy by $613 billion, according to a new study by
Robert Stern of the University of Michigan and others. That is
equivalent to adding an economy the size of Canada to the world
economy. Doing away with all trade barriers would boost the world
economy by nearly $1.9 trillion: the equivalent of adding two more
Chinas to the world economy.

Cutting
trade barriers by a third would boost Canada's economy by $13.5
billion and South Korea's by $14 billion. The gains to Australia would
come to just over $5 billion, those to Mexico to $6.5 billion. The
United States would gain $177 billion, the EU and EFTA $169 billion,
Japan $124 billion. All countries would gain from further multilateral
liberalisation.

Of
course, these are only estimates. Reasonable people can quibble about
the exact size of the gains from a new round. But the basic message
from study after study is clear: a new round brings huge benefits to
all parts of the globe. For instance, a study by the Tinbergen
Institute finds that the potential benefits of a new round in
agriculture alone to the developing world would be three times what it
receives each year in development aid.

The
political challenge is to ensure that we grasp the opportunity of
freer trade rather than succumbing to the threat of protectionism.
Time is short, but the need is great. This month, the negotiations on
agriculture and services that have been underway in Geneva for the
past year pause for stock-taking. These two sectors, which together
account for two-thirds of the world economy, are key building blocks
of a new round. The progress that has been made in both sets of
negotiations is heartening. But the pause for stock-taking could yet
become a deadlock. To ensure it doesn't, we need to broaden the
negotiating agenda beyond agriculture and services.

Why?
Because it creates political trade-offs. Take agriculture. The
European Union and Japan have stated that they are willing to
negotiate meaningfully on reforming agricultural policies. Moreover,
they are committed to negotiate by Article 20 of the WTO's Agreement
on Agriculture. And the looming expiry of the Peace Clause in 2003
gives them a strong incentive to negotiate in earnest. Yet
agricultural liberalisation is extremely sensitive politically. There
is a much greater chance of reforming agricultural support in Europe
and Japan if other countries are willing to make concessions in areas
where Europe and Japan have interests, such as competition,
investment, and anti-dumping.

A
similar logic applies to the so-called “implementation” issue.
Many developing countries have concerns about the burden of
implementing their Uruguay-Round commitments and its perceived
iniquities. They have raised a number of issues which are being
discussed in the WTO's General Council and in WTO committees. Some
modest progress has been made, notably at a special session of the WTO
General Council last December. We need more progress and understanding
here. But there is now a growing recognition that further efforts to
rebalance past agreements require new negotiations. Instead of being a
stumbling-block, implementation could thus become yet another building
block of a new round. The developing countries have won, and correctly
so. There will be no new round without clear signals on this issue.
And no new round will conclude without satisfactory results.

Another
key building block is market access for industrial products, which has
been at the heart of every previous round. It is commonly assumed that
trade in manufacturing is now largely free and that any further gains
from liberalisation would go mostly to rich countries. That is simply
not the case. For one thing, there are still many damaging trade
barriers in manufacturing. And most of their burden falls on
developing countries. Manufactures now account for around
three-quarters of developing-country exports, up from around 30% in
the early 1980s. Moreover, developing-country exports of manufactures
face much higher trade barriers than exports from developed countries,
as a study by Thomas Hertel and Will Martin of the World Bank points
out. They estimate that barriers to manufacturing exports account for
around 70% of the total export barriers faced by developing countries
and that three-quarters of the gains from further manufacturing
liberalisation would go to developing countries. Clearly, then,
manufacturing has to be at the heart of a new round if it is truly to
benefit developing countries.

Setting
the agenda for a new round is not just about including issues. It is
also about excluding some. The WTO Members will never agree to use
trade sanctions to enforce labour standards. It is a line in the sand
that developing countries will not cross. They fear that such
provisions could be abused for protectionist purposes. Moreover, trade
sanctions would harm, not help, workers in poor countries. However,
the social implications of globalization are forcing governments to
consider their priorities. This is also a matter of jurisdictions. It
is a matter of coherence among institutions and we do need a better
answer to those who protest out of fear and anxiety. The fact that
much of their anger is directed at the wrong place is hardly
comforting. Frequently, their solutions would make it worse for the
poorest and most vulnerable of our Members.

The
environment issue is different. Our work at the WTO dovetails with
environmental aspirations in potentially important ways. It is part of
our process now. In areas like agriculture and fisheries, some
existing subsidy policies can compromise environmental quality. We
should work together to address these issues. More importantly still,
poverty is no friend of the environment. The virtuous circle of open
trade and growth contributes to poverty reduction, and the WTO has a
positive role to play here too. But potential conflicts also exist,
most notably when it comes to environmental quality issues that spill
across national frontiers. Here we need greater cooperation among
governments. The WTO cannot solve these problems alone. Punitive
sanctions in the absence of international agreements are hardly the
answer. It should not be impossible for governments to square their
commitments at the WTO with those in MEAs.

Let
me recap. The agriculture and services negotiations pause for
stock-taking this month. Between then and July, we shall make every
effort to hammer out an agenda so that ministers can put the final
touches to it in Qatar in November. The agenda has to be broad enough
to have something in it for everyone, but must exclude issues that are
inappropriate or where compromise is impossible. It has to be detailed
enough to be meaningful, but not so detailed that it becomes a
pre-negotiation. It must be 95% understood and done by July, not 95%
to do in November. It must not be another Seattle.

Four
months is not a long time. That may be a good thing if it helps to
focus minds. It is not unreasonably short. I have already sketched the
broad outline of what a round must contain. Most trade hands will
agree that it is realistic. The missing ingredient is the political
will to compromise. Finding it can be difficult, but once it is found,
progress can be swift.

There
are already many positive signs. The new US administration, which I
met last month in Washington, recognizes the importance of a new
round. President Bush is committed to open markets. The new
United States Trade Representative, Robert Zoellick, is a man of the
highest calibre and a strong supporter of the multilateral system. As
is Pascal Lamy, the EU's trade commissioner, and they have a good
working relationship. Mutual self interest is the building block for
agreements but the cement is personal relationships. Churchill -
Roosevelt - Marshall - Bevin.

The
European Union is also showing signs of flexibility. It has just
completed a review of its approach to a new round. Its fresh approach
has realistic ambitions. For instance, the idea that only those WTO
members that want to need initially sign up to negotiations on
competition and investment is helpful and in keeping with the
precedent set by the WTO's services agreement, which has proved a
great success.

Developing
countries too are looking freshly at the issues. Many of them have
abandoned their previous opposition to a new round. Developing
countries increasingly realise that the large countries have needs
too. They increasingly recognise that dwelling on the perceived
injustices of the past does nothing to prevent even greater injustices
in future. They increasingly understand that the greatest threat to
their economies is not globalisation, but marginalization, a lack of
development, and aggravated poverty.

That
is also a key message of Clare Short's white paper on international
development. I wholeheartedly agree with the ambitious International
Development Targets set out in her recent white paper. Many
governments, international organizations and agencies have endorsed
the targets as the key focus of the efforts of the international
community towards poverty eradication. They provide an objective means
of measuring progress, and of steering efforts towards the practical
outcomes which really make a difference to the poor.

The
overarching objective is to reduce by one half the proportion of
people living in extreme poverty by 2015. Many more specific targets
are also specified to make this a reality. Trade helps growth and has
a major part to play in achieving the International Development
Targets. This is one powerful reason why we want a round of trade
negotiations.

Listen
to the words of Alec Erwin, South Africa's trade minister: “The
danger of not having a multilateral round is to further exacerbate the
development problem. If nothing happens this year, don't underestimate
the dangers of disintegrating the multilateral system. For us in the
developing world that would be disastrous.”

At
the WTO all 140 member countries have a say. Even the smallest country
has a veto, so it can block progress unless its needs are considered.
Even the weakest country can appeal to our impartial
dispute-settlement system when its feel its rights under previous
agreements are being violated. Costa Rica, for instance, appealed to
the WTO when the United States blocked its exports of underwear. Costa
Rica won; the US lifted its restrictions. That simply would not happen
without the WTO. The poor and the weak would be marginalised.

What's
more, when a country opens its markets to another country at the WTO,
it must do so to all. That prevents big countries from using their
clout to rig the market in their favour. A big country cannot offer
privileged access to its markets to one country at the expense of its
neighbour. And it cannot play off neighbours against each other,
gaining special access to their markets in return for limited access
to its own. Without the WTO, the poor and the weak countries would all
too easily fall victim to such power games.

The
WTO is also the surest guarantor that a country is open to
international trade and investment. Binding WTO rules give businessmen
the confidence to invest in a country, and without that investment and
the know-how that comes with it, development is all but impossible.
That is why the WTO's membership has increased by 12 countries, from
128 to 140 in its five years of existence, why China is on the brink
of joining, and why many more countries, including Russia and Ukraine,
are queuing up to join. And it is why Yugoslavia has just applied for
membership. As Yugoslavia's minister for foreign economic relations
said recently in Geneva: “We believe the WTO is a cornerstone of the
international economic system; it is crucial that we must participate
in it. We believe membership will contribute to the democratisation of
Yugoslavia and will greatly contribute to stability in south-eastern
Europe.”

I
don't want to sound like I'm crying wolf. The multilateral system will
not fall apart if we fail to launch a new round this year. It may,
however, become more marginalized for a few years. A global
rules-based system built on non-discrimination could give way to a
patchwork of discriminatory regional deals and even potentially
hostile blocs, combined with aggressive unilateralism by big
countries. Everyone would lose from this. But the biggest losers would
be the poor and the weak.

But
regional trade agreements need not be detrimental to the multilateral
system. Some regions need to progress in order to better take part in
the global economy. Moreover, to the extent that the possibility of
being left out of future regional deals encourages compromise in
Geneva, they may even be a good thing. After all, it is arguable that
NAFTA and APEC spurred Members to reach a deal in the Uruguay Round.
But standing still is going backwards. The status quo is yesterday's
compromise. Injustices must be addressed and they can best be
addressed collectively through fresh negotiations.

We
would do well to heed my three immediate predecessors as head of the
GATT/WTO. In a joint statement issued in Davos six weeks ago, Arthur
Dunkel, Peter Sutherland and Renato Ruggiero warned of “danger in
the present situation”. “We consider it is time for political and
business leaders to pay attention to the danger and make the
development of an adequate response a priority.”

Business
has not been vocal enough in calling for a new round. That is in some
ways understandable. A round can seem nebulous and distant, hard to
measure and harder to achieve. Much like an effective domestic legal
system, the WTO's impact on a business's bottom line may not be
immediately obvious. All of this is true, but it does not alter the
inescapable fact that world trade rules are the backbone of a
globalising economy. They benefit big multinationals, and the millions
of people in rich and poor countries who work for them, by enabling
them to conduct business internationally. But they also bring huge
benefits to small businesses and entrepreneurs who, in the absence of
effective international rules, would not have enough clout to deal
directly with governments. Clearly, it is tempting to take the system
for granted. It is easy to assume it will look after itself. But as I
have said earlier, that is to run a big risk.

Politicians
too need to do more to push for a new round. It is all too easy to pay
lip-service to the need for a new round without showing the necessary
flexibility. It is all too easy to lose sight of the overwhelming
national good in the defence of narrow, special interests. And it is
all too easy to allow the WTO to cop the blame for national failings
and to fail to explain, and explain again, the case for trade
liberalisation and a rules-based system to voters.

My
core message is refreshingly simple. Don't take the benefits of the
WTO for granted. Don't assume that the world trading system will look
after itself. Don't fight yesterday's battles and neglect tomorrow's
opportunities. The world needs a new WTO round. Let's launch it in
Qatar this year.